Jason Stewart; Kristy Stewart v. Commissioner of Internal Revenue

United States Court of Appeals
For the Eighth Circuit
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No. 19-3786
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Jason Stewart; Kristy Stewart
Appellants
v.
Commissioner of Internal Revenue
Appellee
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United States Tax Court
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Submitted: November 19, 2020
Filed: June 8, 2021
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Before SHEPHERD, STRAS, and KOBES, Circuit Judges.
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STRAS, Circuit Judge.
Are taxpayers entitled to a new hearing because a revenue officer included
notes and correspondence about a meeting with their attorney in the official file that
was later made available to the settlement officer who reviewed the case? The tax
court1 said no, and we agree.
1 The Honorable Kathleen Kerrigan, United States Tax Court Judge.

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I.
Jason and Kristy Stewart made over a million dollars between 2015 and 2016
without paying much in federal income taxes. The Internal Revenue Service
assessed deficiencies and penalties, but the Stewarts still did not pay. Once the IRS
placed a lien on their assets, however, the Stewarts requested a due-process hearing.
Their position was that the lien should be discharged and withdrawn because they
could not afford to pay their outstanding balance.
Assigned to the case was IRS Revenue Officer Jeffrey Wagner, who began
his investigation by showing up unannounced to speak with the Stewarts’ attorney
at his office. See Internal Revenue Manual (“IRM”) 5.15.1.2(4) (July 24, 2019)
(describing a revenue officer’s duties, including making “initial contact”). After the
meeting, which did not go well, Wagner placed detailed notes in the IRS’s
administrative file. They described the attorney as “uncooperative,” in part because
he refused to provide the Stewarts’ financial information upon request, saying that
he would only send it “directly to the Office of Appeals.” Then, following some
further discussion, he abruptly ended the meeting by saying “we’re done” and
“direct[ing] [Wagner] to get out of his office.”
Wagner also drafted a letter, which he sent to the attorney and placed in the
administrative file later that day. Summarizing what had happened at the meeting,
the letter, just like the notes, discussed the attorney’s “refus[al] to provide any
collection information and . . . brusque[] direct[ion] . . . to leave [his] office.” And
it made clear that Wagner did not appreciate the “complete refusal to provide or even
entertain providing” the financial information he had requested.
Two other key developments followed. First, on the same day as the meeting,
the IRS officially notified the Stewarts through what is called a “notice of intent to
levy” that it planned to seize their assets. Second, the Stewarts eventually received
their due-process hearing, in which a number of “collection alternatives” were
“discussed” with Settlement Officer Gregory Wert. One was “placing [their

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account] in currently noncollectible . . . status,” which would temporarily halt the
proposed levy. See Lantz v. Comm’r, 607 F.3d 479, 487 (7th Cir. 2010).
Based on the administrative file, a financial analysis prepared by Wagner, and
the hearing itself, Wert decided that the Stewarts were not eligible for noncollectible
status. Then, in a petition to the United States Tax Court, the Stewarts argued that
the notes and letter were improper ex-parte communications that prejudiced Wert
against them. The tax court disagreed on the ground that otherwise prohibited
“statements” can be included in the administrative file as long as they are made
“contemporaneously” and “are pertinent to . . . consideration of the case.” Rev.
Proc. 2012-18, § 2.03(4)(d), 2012-10 I.R.B. 455, 460.
II.
This administrative-file rule, as we will call it, is part of a broader attempt to
preserve “the independence of” settlement officers from other parts of the IRS.
Robert v. United States, 364 F.3d 988, 994 (8th Cir. 2004); see Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 1001(a)(4),
112 Stat. 685, 689. Independence includes separation between the investigative and
adjudicative functions, so the IRS has restricted communications between the two,
at least when the taxpayer is not included. See Rev. Proc. 2012-18, § 2.01(1), 2012-
10 I.R.B. at 456. Specifically, certain comments and statements—particularly those
about “the demeanor or credibility of the taxpayer or taxpayer’s representative” and
“the level of cooperation (or lack thereof) of the taxpayer/representative during the
[revenue officer’s] consideration of the case”—are generally prohibited. Id.
§ 2.03(3)(c), (d), 2012-10 I.R.B. at 459.
Wagner’s statements in the notes and letter fall directly within this general
prohibition. The notes describe the Stewarts’ attorney as “uncooperative” and
provide specific examples: refusing to hand over financial information, ending the
meeting abruptly, and telling Wagner “to get out of his office.” The letter mirrors

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these points. Each, in other words, comments on “the demeanor . . . of the . . .
taxpayer’s representative” and “the level of cooperation” he provided.2 Id.
Generally prohibited, however, does not mean always. Under the
administrative-file rule, “contemporaneous[]” statements may “permissibl[y]” be
included in the file as long as they “are pertinent to the [revenue officer’s]
consideration of the case,” even if they would otherwise be prohibited. Id.
§ 2.03(4)(d), 2012-10 I.R.B. at 460. Adoption of this rule suggests that, at least in
some circumstances, the IRS has decided that the need for revenue officers to
document their investigations trumps independence. See id.
This is one of those circumstances. There is no dispute that the statements in
the notes and letter were contemporaneous. Cf. Drake v. Comm’r, 125 T.C. 201,
203 (2005) (involving comments and statements that were sent long after the events
in question took place). Rather, the dispute here is about pertinence, with the
Stewarts characterizing Wagner’s comments as “gratuitous.” Rev. Proc. 2012-18,
§ 2.03(4)(d), 2012-10 I.R.B. at 460 (prohibiting “gratuitous comments in the case
history[ or] a memo to the file . . . if the substance of th[ose] comments would be
prohibited if they were communicated to Appeals separate and apart from the
administrative file”).
Though the statements were undoubtedly “color[ful],” Oral Arg. at 7:20–22,
they were not gratuitous, see Webster’s Third New International Dictionary 992
(2002) (defining “gratuitous” as “[un]called for by the circumstances”); The
American Heritage Dictionary of the English Language 767 (5th ed. 2016) (defining
2 We reject the government’s argument that these statements were merely
“ministerial, administrative, or procedural.” Rev. Proc. 2012-18, § 2.03(2), 2012-
10 I.R.B. at 458. By commenting on the attorney’s lack of cooperation, for example,
Wagner did not limit himself to the purely administrative question of “whether
certain information [had been] requested and received.” Robert, 364 F.3d at 994
(noting that the IRS has adopted “a limited view of communications that would be
considered ministerial and that could occur on an ex[-]parte basis”).

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“gratuitous” as “[u]nnecessary or unwarranted; unjustified”). After making “initial
contact,” Wagner had a duty to “[d]ocument the [case] history” when the taxpayer’s
representative proved “unable or unwilling to provide all the necessary information.”
IRM 5.1.10.3(9) (Feb. 26, 2016). The statements were “pertinent” precisely because
they would serve as a reminder of the information that Wagner still needed to collect
and what difficulties he might face in doing it. Rev. Proc. 2012-18, § 2.03(4)(d),
2012-10 I.R.B. at 460; see Webster’s Third New International Dictionary, supra, at
1688 (defining “pertinent” as having “some connection or relation with”); American
Heritage Dictionary, supra, at 1318 (defining “pertinent” as “[c]learly related to a
matter at hand”).
A central theme of the Stewarts’ argument is that, once they requested a due-
process hearing, Wagner never should have shown up and demanded financial
information. A hearing request, however, does not suspend the IRS’s investigation.
See IRM 5.1.9.5.3(5) (Feb. 7, 2014). To the contrary, revenue officers may
“continue[] to work with the taxpayer by securing and evaluating financial
information and contemporaneously documenting [the] case history.” Id. Indeed,
to determine whether the Stewarts’ debt was noncollectible, the IRS had to evaluate
their financial condition, so Wagner still had a role to play in gathering information
in advance of the hearing. See id. at 5.1.10.3(10) (Mar. 24, 2020) (“Revenue officers
will attempt to secure, review, and discuss financial statements in person in the
field.”); id. at 5.16.1.2(2) (Jan. 1, 2016) (explaining that certain financial information
is generally required before placing an account on currently noncollectible status);
Rosendale v. Comm’r, 116 T.C.M. (CCH) 4, 6 (2018) (noting that a taxpayer
qualifies only if he is unable to pay).
Nor are the Stewarts entitled to a new hearing before a different settlement
officer just because judicial-conduct rules impose stricter limitations on ex-parte
communications than the IRS does. See, e.g., Model Code of Judicial Conduct
r. 2.9(A) (Am. Bar Ass’n 2020); United States v. Earley, 746 F.2d 412, 413, 415–17
(8th Cir. 1984) (involving a “trial brief” sent to the district court but not given to
opposing counsel). Settlement officers are not judges, and the IRS decided early on

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that it would “not adopt the formal ex parte procedures that would apply in a judicial
proceeding.” Rev. Proc. 2012-18, § 1, 2012-10 I.R.B. at 456; accord Rev. Proc.
2000-43, § 2, 2000-43 I.R.B. 404, 405; see also Hoyle v. Comm’r, 136 T.C. 463, 469
(2011) (rejecting the taxpayer’s reliance on judicial-conduct rules because “[t]hey
do not govern the matters before us and are not applicable”). For these reasons, the
Stewarts are not entitled to a new hearing.
III.
We accordingly affirm the judgment of the tax court.
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